Corporate income tax accounting in vietnam in the context of international integration on accounting

Zijl 2005 have identified the following reporting impacts on companies: i income taxes due to fundamental changes in measurement principles and deferred income tax, assets, and liabiliti

MINISTRY OF EDUCATIONAND TRAINING

- MINISTRY OFFINANCE

ACADEMY OF FINANCE

DAO TUYET LAN

CORPORATE INCOME TAX ACCOUNTING IN VIETNAM IN THE CONTEXT OF INTERNATIONAL INTEGRATION ON

The project was completed at

the Academy of Finance

Science instructor:

1 Associate Professor, PhD Tran Van Hoi

2 PhD Ly Lan Yen

Counterargument 1:

Counterargument 2:

Counterargument 3:

The dissertation will be defended before the Dissertation Review Board at the Academy level in a session held at the Academy of Finance Vào hồi giờ ngày tháng năm 20

The dissertation can be accessed at the National Library and the Library of the

Academy of Finance

INTRODUCTORY

1 The Essentiality of the Research Topic

Vietnam has entered into numerous multilateral and bilateral agreements with countries worldwide, requiring the government to adapt its legal system to meet the demands of the integration process Intending to enhance transparency and efficiency in financial information, increasing corporate accountability, safeguarding the business environment, and protecting the legitimate investors of investors, as well as promoting Vietnam's economic integration with the region and the world, on March

16, 2020, the Ministry of Finance issued Decision No 345/QD-BTC approving the plan to implement VFRS (Vietnamese Financial Reporting Standards) based on the principle of maximal alignment with international norms, in line with Vietnam's economic characteristics and business needs This plan will be implemented in three phases: a preparation phase (2020-2021), a voluntary application phase (2022-2025), and a mandatory application phase after 2025 The transition from IFRS (International Financial Reporting Standards) to national GAAP (Generally Accepted Accounting Principles) will impact taxes due to companies' use of different accounting principles for financial reporting As Nobes (1994) points out, harmonization is a process aimed at enhancing consistency and comparability of accounts to facilitate international capital flows and information exchange by reducing differences in accounting and taxation laws However, applying these international harmonization standards raises concerns about its impact on the tax burden of reporting entities Applying IFRS will change the structure of financial statements It is also foreseeable that applying IFRS may alter the financial results of reporting entities (Hickey et al., 2003) Although the financial impact of implementing IFRS will vary from one company to another, Teixeira (2004), Bradbury and Van

Zijl (2005) have identified the following reporting impacts on companies: (i) income taxes due to fundamental changes in measurement principles and deferred income tax, assets, and liabilities; (ii) revaluation of plant and property when revaluation is no longer occurring in a type of asset; (iii) lacking equivalent standards to Vietnamese Accounting Standards (VAS) for revenue and intangible assets; (iv) financial instruments, including derivative financial instruments, need to be measured at fair value, and detailed rules applied for hedging or business combination accounting for the change in accounting method for goodwill when combined On the other hand, there may be alternative accounting methods to the accepted accounting standards, but tax effects may inappropriately influence the choice of method (Abedana et al., 2016)

To date, Vietnam has seen a multitude of studies regarding the enhancement of corporate income tax accounting Notable works include those by Nguyen Anh Hien and Phan Thanh Trung (2016), Nguyen Thi Chuyen and colleagues (2017), Tran Thi Lan Huong (2015), Dao Nam Giang and Vu Thi Thu Hang (2019), Vu Thi Hoa (2016), Nguyen Thi Thu Hoan (2020), Pham Quoc Thuan (2019), among others These studies have systematically synthesized the theoretical foundation of taxation and tax accounting, analyzed the operational characteristics of various enterprises, and subsequently proposed solutions to improve the tax accounting system suitable for the specific research targets However, the major limitation of domestic research is that all these studies have approached corporate income tax accounting based on Vietnamese Accounting Standards (VAS) Therefore, the research findings may no longer be applicable in transitioning from VAS to IFRS by 2025, transforming from a familiar domestic financial reporting framework to a globally recognized set of standards with new changes

Additionally, foreign studies on corporate income tax accounting have also garnered attention, such as the works by Martins and Sa (2018), Weinstein (2015), Flowerdew and Wan (2006), Komala (2012), and others These are qualitative studies with research outcomes drawn from analyzing typical cases of accounting errors in corporate income tax that occur in practice Hence, based on the analysis of the impact of tax policies on the application of corporate income tax accounting, revenue, cost allocation, or deferred income tax, the objective of this research is to identify managerial implications for improving corporate income tax accounting for Vietnamese enterprises in the context of the transition to IFRS The author contends that the study "Corporate Income Tax Accounting in the International Integration of Vietnamese Accounting" is a worthy research topic for these reasons

2 Research Objectives

The general objective of the thesis is to propose solutions for enhancing corporate income tax accounting in Vietnam within the context of international accounting integration

The specific objectives include:

(i) Investigating theoretical aspects of corporate income tax accounting under International Financial Reporting Standards (IFRS);

(ii) Examining the current state of corporate income tax accounting under IFRS in Vietnamese enterprises.;

(iii) Assessing and measuring the impact of various factors on corporate income tax accounting under IFRS

(iv) Proposing solutions to improve corporate income tax accounting

in Vietnam within the framework of international accounting integration

4 Research Subject and Scope

The research subject of the thesis is corporate income tax accounting in

Vietnam within the context of international accounting integration

Scope of the Study:

- Spatial Scope: The study focuses on 207 companies in the Vietnam stock market, which are enterprises with high requirements for applying International Financial Reporting Standards (IFRS)

- Temporal Scope: The thesis selects a research period from 2017 to

2022, wherein secondary data is collected from 2017 to 2021, and primary data is gathered in 2022

5 Research Methodology

To align with the research content and achieve reliable results, the thesis employs a combination of research methods, specifically as follows:

5.1 Qualitative Research Method

The collection of materials involves sourcing from research works,

articles, specialized research theses, financial reports, field observations, and recent case studies on corporate income tax accounting in selected enterprises The aim is to identify exemplary corporate income tax accounting cases according to tax laws, Vietnamese standards, and International Financial Reporting Standards (IFRS) amid international integration Additionally, the research employs situational analysis through group discussions, paired discussions, analysis, comparison, synthesis, and interviews with tax accounting professionals in various enterprises and experts in the field

5.2 Quantitative Research Method

The author employs data processing and analysis techniques using SPSS 25.0, including Descriptive statistics of observed variables, Descriptive analysis, Analysis of Cronbach's Alpha reliability coefficient, Exploratory Factor Analysis (EFA), and Linear regression equation To ensure the reliability and effectiveness of the regression model, the author also conducts the following tests: Hypothesis testing on the model's appropriateness, Testing for multicollinearity, Testing for autocorrelation, and Testing for variance changes

6 The Novel Contributions of the Thesis

6.1 In terms of theory:

- The thesis has systematized and elucidated theoretical aspects related to corporate income tax, and regulations governing corporate income tax accounting in the context of international accounting integration

in Vietnam This encompasses measurement, recognition, and presentation

of information

- The thesis also analyzes foundational theories and experimental accounting research from previous studies Based on this, the research constructs a scale for measuring how Vietnamese enterprises implement corporate income tax accounting within the framework of international

accounting integration Building upon this foundation, the thesis proposes solutions to improve the recognition and presentation of corporate income tax accounting in the context of global integration Additionally, the theory provides solutions for implementing corporate income tax accounting under conditions of international accounting integration Consequently, the research contributes foundational content for guidelines by government regulatory agencies on corporate income tax accounting It also supplements the evidence base for researchers studying corporate income tax

6.2 In practical terms:

The research serves as a valuable foundation for assessing the current state of corporate income tax accounting when businesses implement accounting policies according to IFRS The research quantifies the specifics of corporate income tax accounting through accounting techniques, providing results beyond mere qualitative assessments The testing and regression analysis outcome helps the study identify factors influencing the recognition and presentation, ultimately systematizing information about corporate income tax under IFRS This encompasses both direct and indirect impacts on corporate income tax accounting The research findings can serve as reference material for enterprises managing corporate income tax at various stages of

implementing IFRS accounting policies

7 Structure of the Thesis

Apart from the introduction, conclusion, and appendices, the thesis is structured into three chapters:

Chapter 1: Theoretical Foundations of Corporate Income Tax Accounting

Chapter 2: The Current State of Corporate Income Tax Accounting in

Vietnamese Enterprises within the Context of International Accounting Integration

Chapter 3: Directions and Solutions for Enhancing Corporate Income Tax Accounting in Vietnam within the Framework of International Accounting Integration

Chapter 1

THEORETICAL FOUNDATIONS OF CORPORATE INCOME

TAX ACCOUNTING 1.1 Fundamental Issues in Corporate Income Tax Accounting

1.1.1 The Historical Formation and Development of Corporate Income Tax Accounting

The evolution of accounting is closely tied to the development of commodity and monetary systems Around the 5th century B.C, accounting witnessed significant growth and influence alongside the powerful dominance of the Roman Empire in Rome

1.1.2 The Concept of Corporate Income Tax Accounting

According to IAS 12: "Corporate income tax accounting is the reflection of the current and future tax consequences of recovering the carrying amounts of assets, liabilities, and other transactions or events recognized in an entity's financial statements" (IAS 12, 2012)

FASB states, "Corporate income tax accounting is the determination

of amounts payable or refundable for the current year's taxes and deferred income taxes payable on future taxable events recognized in a company's financial statements" (FASB, 2007)

1.1.3 The Role of Corporate Income Tax Accounting

Corporate income tax is a significant accounting element that directly influences a business's financial condition and operational outcomes Accounting for corporate income tax is closely tied to evaluating and

judging the enterprise's financial position Information regarding corporate income tax not only reflects the fulfillment of the business's obligations and responsibilities to the government but also portrays the image and credibility of the enterprise in complying with and adhering to the state's legal regulations regarding taxation Deferred corporate income tax information in financial reports is paramount in making economic decisions and monitoring the business activities of entities utilizing the data

1.1.4 Legal Framework for Corporate Income Tax Accounting in International Integration

In descending order, the legal documents governing corporate income tax accounting activities include Accounting Law, accounting standards, accounting regulations, guiding circulars providing implementation or additional guidance, and adjustments in response to emerging issues In addition, corporate income tax accounting in enterprises

is directly influenced by the Law on Corporate Income Tax of the National Assembly, Government Decrees, and Circulars from the Ministry of Finance When enterprises prepare financial reports according to IFRS, the legal framework for corporate income tax accounting is governed by IFRS for accounting purposes and is subject to the influence of the legal system governing corporate income tax

1.2 The Relationship between Accounting Regulations and Corporate

Income Tax Policies

Analyzing the relationship between accounting and taxation primarily addresses corporate income tax: net income is accounted for using accounting principles for measurement and recognition, while taxable income is based on the corporate income tax laws for calculation Starting from this point, there is a distinction between accounting profit and taxable income These differences are a crucial consideration when

classifying accounting systems (Gee et al., 2010; Nobes, 2011; Kvaal & Nobes, 2013; Hellman et al., 2015) and allow for the construction of an alternative income measure (Graham et al., 2012) or an intentional manipulation by companies in managing accounting income or tax evasion Accounting standards may account for this gap between net corporate income and taxable income

1.2.1 Theoretical Framework on the Relationship between Accounting and Corporate Income Tax

The tax system is an integral component of the national income distribution system, primarily aimed at generating revenue for the country Additionally, the state utilizes the tax system to control the entire economy, achieve social objectives, and potentially incentivize or restrict certain business activities within the economy Balancing these objectives is a concern for any tax system, requiring the tax system to achieve several goals such as fairness, efficiency, and sustainability The accounting system's main objective is to use accounting regimes and standards to prepare financial reports that provide information for decision-makers Accounting aims to provide helpful information for various user groups such as the government, investors, lenders, creditors, shareholders, etc To achieve this goal, several accounting principles must be applied, including accrual basis, continuity, historical cost, relevance, consistency, prudence, Materiality (Accounting Standard 01 - VAS 01: General Accounting Standard), reliability, feasibility, and economy (James & Nobes, 1978)

1.3 Regulations on Corporate Income Tax Accounting in the Trend of International Accounting Integration

1.3.1 Current Corporate Income Tax Accounting

The current corporate income tax is the officially assessed tax amount that a business must pay to the state budget, arising from the taxable income

within the fiscal period The enterprise must use its resources to fulfill this obligation, thereby diminishing the economic benefits of the business meeting the criteria for recognition as a liability according to accounting

standards

1.3.2 Deferred Corporate Income Tax Accounting

Deferred income tax is a concept in accounting, that refers to the amount of income tax deferred in the current financial year and will be paid

or credited in the future This amount arises from the temporary differences

in recognizing the book value of assets and liabilities, based on the tax basis Determining these temporary differences is complex in theory In theory, there are two approaches to deciding these temporary differences

1.3.3 Accounting Standards Directly Governing Corporate Income Tax under IFRS

1.3.3.1 Measurement and Recognition of Corporate Income Tax under IFRS

❖ Measurement of current corporate income tax under IFRS

❖ Recognition of current corporate income tax under IFRS

❖ Measure of deferred corporate income tax under IFRS

❖ Recognition of deferred corporate income tax under IFRS 1.3.3.2 Presentation of Current and Deferred Income Tax under IFRS The presentation of corporate income tax information should ensure the utility of the data for various users Presenting accounting information

in general and information about corporate income tax in particular on financial statements must ensure the comparability of information on a global scale, complying with the regulations for presenting corporate income tax information in accounting standards of relatively standardized countries

1.3.3.2.1 Principles of Presenting Corporate Income Tax on Financial Statements according to IAS 12

The principles of presenting corporate income tax under IAS 12, complemented by other standards, require that the calculation of current and deferred taxes be specified in disclosing information

1.3.3.2.1 Materiality is guided by IAS 12

The definition of Materiality is described in IAS 1.7: 'Omissions or misstatements are material if they could individually or collectively influence the economic decisions that users make on the basis of the financial statements Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances

1.3.3.2.3 Presentation of Current Income Tax Information on Financial Statements

The accounting for income tax under IAS 12 emphasizes the focus

on the balance sheet The tax balance on the balance sheet reflects the amount expected to be paid or recovered from the relevant tax authorities related to taxable profits for the current and prior periods from the date of the balance sheet Therefore, a crucial step in the tax accounting process is reconciling tax accounts and tracking balances by year for tax computation, legal tax jurisdictions, and the nature of items (e.g., uncertain tax positions, deferred tax items)

1.3.3.2.4 Presentation of Deferred Income Tax Information on Financial Statements

To determine the presentation of deferred income tax on the entity's balance sheet, it is necessary to assess whether the offsetting between deferred income tax assets and liabilities is appropriate Deferred income tax assets and deferred income tax liabilities should only be offset on the balance sheet if the entity has a legally enforceable right to set off on a net

basis and the same tax authority taxes them on behalf of the same entity or different entities to settle simultaneously and legally offset the legal responsibilities (IAS 12, paragraph 74)

1.3.4 Accounting Standards Governing Indirect Corporate Income Tax

The vital issue in income tax accounting is how to account for the tax consequences of recovering or settling the carrying amount of assets or liabilities recognized on an entity's balance sheet, which are considered deferred income tax The carrying amount is determined based on IFRS guidance and is recorded on the entity's balance sheet The tax base is the basis for calculating deferred income tax liabilities This is due to the temporary differences calculated as the difference between the carrying amount and the tax base of each asset and liability on the entity's balance sheet Temporary differences arising include:

(1) Arises from the interest the business expects to recognize under IFRS 15

(2) Accrued expenses and provisions IAS 37

(3) Advance payments from customers under IFRS 15

(4) Development costs of products

(5) Differences in depreciation costs of fixed assets IAS 16

(6) Revaluation of IAS 16 assets

(7) Post-acquisition fair value allocation IAS 13

(8) Deductible value carried forward to future years of unused tax losses

(9) Deductible value carried forward to coming years of new tax incentives

1.4 Theoretical Frameworks Applied to the Research